Trade Idea: Short EUR/GBP

Published on Monday January 9th, 2012 at 12:22PM by HarryPilgrim

Update 29/6

It's all over. After six months spectating, the 6am news has rousted me out of my bed to close my remaining short EURGBP. One has to admire the European leaders for at last delivering what genuinely looks like euro-rescuing news and I don't wish to appear churlish, but at three in the morning? For pity's sake.

Still, there's 340 pips in the bag, which makes up for a lot.

Pip! Pip!

HP

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Update 25/6

I suspect that EURGBP can keep up this ranging for another month. After finding support today at the .8120, I closed my minor trade for +63pips. In case it can't keep it up, my January short waits patiently for a break of the long term trend or for eurogeddon. I have placed another order at .8100 just in case of a bounce.

Well you never know, there is a lot of politics in the offing this week and someone might say something nice. Not too nice, though. If Angela says, "Banking Union" then euro shorts are all invalid.

Pip! Pip!

HP

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Update 15/6

Hats off to the Old Lady for introducing the funding for lending scheme. At first blush it resembles a QE-style currency debasement scheme - "sterling negative" in the words of a commentator who should have known better. However, it is better thought of as a supply-side reform, a way of ameliorating credit crunch conditions at no cost or risk to the exchequer. The Bank is doing what the ECB cannot: supplying money to it's clearing banks for lending to business and households. The odd thing is that it did not think of it earlier.

The Bank has also played a blinder with it's QE programmeIt has made a third or so of the UK's sovereign debt disappear, at least temporarily, by buying it up. It takes the pressure off fiscal policy in a way that LTRO cannot match.

In the absence of a second Marshall plan what the periphery really needs is a monetization of it's debts; a seignorage in which they are similarly made to disappear. The most realistic risk to my shorts is the introduction of eurozone bonds, although the announcement of a banking union would also give me pause for thought. I hang on Mrs Merkel's every word.

My .8060 trade closed at the end of play for +13 pips. I have left my 81 and 84 pence trades running and my order at .8210 open in case of anything silly happening at the weekend as we have been told to expect. Dare I say "up Syriza"?

Pip! Pip!

HP

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Update 13/6 again

81 pence! Well there's a suprise. I have added a further short since we are now flagging below the round number. I also notice how this level provided resistance during May.

There has been a heck of a lot of news today. My summary is that things are getting worse but the authorities are responding admirably. Will tomorrow be equally rumbustuous?

The TP for this one is amid the recent lows at .8020. My poorly timed one of .8060 I plan to close for evens, assuming the chance arises. I have set a further short order at .8220, April's significant level. I'm sure we're not going to see news that positive this side of the weekend though.

Pip! Pip!

HP

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Update 13/6

Having failed to replace my short with a new one at .8160 for no better reason than it was past my bedtime that Sunday night, I have now done the job at .8060 instead. That'll teach me to sleep at night, during the weekend.

The little spike I have sold is occasioned by the weak US PPI numbers just announced. The spike is one to fade because of the larger concerns about a further Greek bailout and other dark mutterings about Italy and Spain today.

What I really need now is a plan for this weekend. Apart from catching up with a few Zs, I want to trade the Greek election. A Syriza victory means adding to the short euros. Anything else means I might as well take profit on this one in the hope of better chances later. Exit polls from 1600 BST Sunday. I hope it will be raining where I am.

The weak US data increase the likelihood of QE3 on Tues. This would be bad for the dollar but, I suspect, only in a temporary way. The European pickle is much worse. Sterling looks cheap at anything below $1.58.

All that is for after the news is out. Can't wait!

Pip! Pip!

HP

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Update 10/6

Not like me to trade at the weekend but I have made an exception for the Spanish bailout. ¢100bn is a lot more than the ¢40bn we were expecting on Friday. My recent trade is now closed for +15 pips. I think in the end the GBP might benefit as much as the euro so I am not  closing my 84 pence short quite yet. The bias is still southwards for the usual reasons (see below).

Pip! Pip!

HP

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Update 6/6

We seem to be in a range as per this pair's usual habit. I believe I have sold near the top at .8116. The bottom is around .80, where my TP is. I am hoping to make this trade a few times before the downtrend resumes. If there is one thing clear in all this political uncertainty, it is that the stable UK will be doing much better than the embattled eurozone. I think the recent dips below 80 point to much lower prices. Might we see a sub 70 pence euro this year? 

Pip! Pip!

HP

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Update 1/5

This pair is still heading southwards towards 80p but in spite of that I have taken profit on the lesser of my two trades (195 pips) following the disappointing UK PMI just now. 

Two reasons for this:- 

Firstly, a retracement perhaps to the ceiling at .8270 seems likely

Secondly, I am diversifying away from euro shorts in favour of short CHFs, JPYs and anything else their central banks seem determined to undermine.

This means that upon a retracement to .8270 I should prefer a long GBPCHF rather than adding once more to this position. The surviving 84 pencer still targets the big floor of 80p.

Pip! Pip!

HP 

Update 5/4

How refreshing to see some action on this pair. I have taken the opportunity to close the last of my poorly timed trades at a profit of a dozen pips. It had been open since Jan, a wrong 'un but you've got to admire my patience with the blasted thing.

This leaves my two 84 pencers to target the increasingly distant trend floor, presently below 81p. In case of yet another tedious spikelet, I have placed a further short order at .8320, a favourite weekend home of the euro this last few weeks.

What would really help is some more good news from the UK economy but lately it has been a right old mixed bag. Perhaps it would help if I put more effort in to my day job. England expects each man to do his duty etc. There is not much scheduled UK news in the offing so I guess the Jan low of .8220 is safe for now. Yawn. 

Pip! Pip!

HP

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Another Update 9/2

Dampening input from the IMF follows an apparent failure at 84p. In short again at 8390. Exciting, innit?

Some numbers:

Youth unemployment:
Greece 48%
Spain 38%
Portugal 20%
UK 19%
Germany 11%

 

Update 9/2

The succesive toppling of the obstacles to the bailout have been responsible for the continuation of the week's uptrend to the successful penetration of 84p. I have therefore taken advantage of the Bank's announcement downspike to close my 8350 trade for the princely profit of one pip. In retrospect it was a badly timed one and had to go.

The underlying trade idea, that the EZ will be unable to fully participate in the global recovery, remains valid and I remain short. If the good news takes us to 85p I'll get even shorter. For now I'm content to have reduced my exposure during this uncertain spell.

Update 7/2

My replacement short order at .8350 was hit in today's Greece-on rally, but only just. The result is that the new short sits almost as prettily as the best surviving one at .8400. Temporarily, no doubt, because there will be future rallies to fade. My worst trade had crossed into the black earlier but I missed my chance to close it. It's target remains at the Jan low.

Update 31/1

The stonking move to profitability today I assume to be a month end phenomenon. I also assume there is going to be a retracement, there always is on this pair.

Therefore I have closed my mid-placed trade at the London close for about 40 pips profit. My best and worst ones survive and I will seek to replace my middler at 83.5-ish pence.

Risks to the shorts that remain seem to come mainly from the SNB but that is a different story.

Pip! Pip!

HP

Update 27/1

Short order hit at 84 pence. The risk is that the airspace between 84p and 85p is filled with new and interesting chart patterns. However with mediterranean results going from appalling to catastrophic, 81p will be next if there is any justice in the world.

=========

Update 13/1

I have set TP on the least advantageously priced of my two shorts to coincide with recent lows.  I am entertaining hopes that the bigger and better one at .8330 might go on to live a long and happy life. The volatility that has enabled me to take these good-looking shorts has resulted from political comments and soft data. One feels most for the people of Greece.

GBP Outlook:

More QE is expected in Feb. FT.com commentary says that UK inflation might fall rapidly from 4.8% at present to 2 or 3% by May. How much of this is priced in? Cable charts are bearish but not as bearish as the euro charts which are defecating in the woods like there is no tomorrow, which indeed there might not be for the single currency.  Hard data, especially the UK unemployment data, out next week might provide another spike to sell.

There is no need to be closing the overall position at the present. If my TP is hit, I'll be replacing it with a further short order.

Pip! Pip!

HP


Update 12/1

I have added to this short at key resistance at .8330. Thanks to BigPippin for indicating the level!

Pip! Pip!

HP

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Following the poor trade results from Germany a few minutes ago, I doubt the retracement of EUR/USD to the top of it's trend channel, at 1.29ish, will complete. I really need a risk-off trade, preferably a short euro, to hedge against my risk-on long cable, so this is it.

I have entered at market .8260 with an additional short order at 83 pence. Target is .8150. The euro loves it's pennies and halfpennies and the December lows at 83p mark the resistance level. In the event of that order being hit, I'll move the take profit on my least advantageously priced short to break even and let the 83p trade run.

Perhaps we will see a recovery in forex generally in the hope of good news from the Bank's and ECB's interest rate decisions and attendant press conferences later this week. Perhaps there will be a renewed sell-off when good news fails to materialise. I notice that the euro is still above it's purchasing power parity level and sterling is well below it's ppp. Although ppp does not count for much amongst the trading community it does mean that EURGBP can fairly depreciate much further, perhaps into the 70 pences.

I make no attempt to forecast the future and now I have introduced some balance to the portfolio I feel more relaxed about the whole thing. This new position increases my long sterling exposure, so it is far from being a perfect hedge. As long as we don't have an old fashoined sterling crisis, I should be alright. The hard data from the UK lately has all been positive but the air of gloom is slow to lift. 

I still would like a short EUR/USD to round the portfolio off. If a short squeeze takes shape, I'll be ready to jump on it's peaks.

  • 1 comment
  • Go to HarryPilgrim's profile

    On Wednesday January 11th, 2012 at 12:31PM by HarryPilgrim -

    I have used the chop and change of today's entertainments to improve this position. Here's how:

    1. Sold the spike at .8270 with a trade double the size of my original of .8260.

    2. Set the take profit of the orginal at it's first profitable key level, in this case .8250. 

    3. TP was hit in the reaction to Fitch's amusing comments.

    The result is that I have taken my first megre profits of the year and improved the level of this successful-looking position. It is now twice the size of my unsuccessful long cable, of which more later.

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